Cornered in California

Debate over pension perks for high-paid UC execs is political pickle for Mark Yudof, who risks alienating key players or stoking populist rage. For now, he's opposing execs.
January 5, 2011

In what many view as a politically defining moment, University of California President Mark Yudof has placed himself in opposition to some of the system’s most influential players – at least for now.

In a joint statement with Board of Regents Chair Russell Gould Tuesday, Yudof declared that he “must disagree” with a group of highly compensated executives who say they are entitled to increased retirement benefits. The statement could usher in a legal showdown between Yudof and 36 employees, who argued in a recent letter that the system was obligated to recalculate their retirement benefits.

The debate dates back years, to when the university first pressed for an exemption to federal tax rules that cap retirement benefits based on a percentage of the first $245,000 in income, rather than an employee’s entire salary. The I.R.S. granted that exemption in 2007, but Yudof and Gould said the exemption “did not obligate the university in any way to proceed with” lifting the cap.

“While those who signed the letter are without question highly valued employees, we must disagree with them on this particular issue,” the statement reads.

And disagree they do. Drawing from regents’ minutes, the executives cite language that states benefits “will be restored.”

"The 1999 action [in which the executives assert the regents gave conditional approval to the pension changes] was not a 'proposal' ... it was approved regents policy," the letter states.

Tuesday’s statement from Yudof and Gould came amid outcry from faculty and lawmakers, some of whom have described the executives as tone deaf to the political and fiscal realities of the cash-strapped state. The system has a $21.6 billion unfunded pension obligation, and officials expect that the increased benefits for wealthier executives would add another $5.5 million a year to that figure, according to a 2008 valuation, which is the most recent figure that officials could provide Tuesday. In order to make the changes retroactive to 2007, another $51 million would be required, the valuation found.

The public criticism hasn’t compelled any of the letter’s signatories to distance themselves from their stated positions. Christopher Edley Jr., dean of the law school at California’s Berkeley campus, said Tuesday that he is unwavering in his belief that he and others are owed this money, adding that the university has a stake in demonstrating that its promises will be kept.

“The craven scum who signed this letter, including me, believe this is about honoring a deal, not seeking a new one, and the hate mail isn’t as important as the need to defend policies that will keep UC’s 10 campuses strong,” Edley wrote in an e-mail to Inside Higher Ed.

Apart from his position as a high-profile dean, Edley is widely known as a key voice in system-level discussions about the future direction of the university, which he argues should dramatically expand online offerings.

While Edley and others say they've been denied something they were promised, they wouldn't be the first to be caught off-guard by regents' decisions lately. In the last three years, the board has approved a reduction in retiree healthcare contributions, raised the retirement age for future employees, instituted unpopular furloughs and approved unprecedented tuition hikes. While highly compensated employees who are fighting over pensions were hit by these measures too, many university employees who lost money and benefits in recent years never will earn salaries even close to levels where they would be impacted by a pension cap.

The collective pain endured by the state is no doubt fueling criticism of highly paid employees seeking better benefits. In such a climate, it would make political sense for Yudof to go beyond mere legalese and admonish the executives for their insensitivity, said Assemblyman Marty Block, a Democrat of San Diego.

“He needs to express the same kind of outrage about this,” said Block, chair of the Assembly Committee on Higher Education.

It may well shake out legally that some of the executives have legitimate contractual claims to higher benefits, Block added. But that doesn’t mean Yudof shouldn’t express his disapproval, he said.

“Politically, you don’t have to take a poll. You don’t have to have a weather vane to know which way the wind is blowing,” Block said. “Now, if legally his hands are tied, I respect the law requires him to do what he has to do.”

Yudof’s statement does not criticize the executives, other than to cite a disagreement in legal interpretations. It also leaves vague what might come next. Notably, there’s no discussion of whether he will recommend the regents take any action to formally reject the program, or merely stand by the position that the program was never implemented and, therefore, doesn’t exist.

When contacted Tuesday, a spokesman in Yudof's office did not elaborate much on the statement. “It’s not clear whether the issue requires further review by the regents," said Steve Montiel, the spokesman.

Tough Spot

The pension fight presents a classic higher education leadership dilemma for Yudof: side with the executives, and suffer the populist wrath of a weary public long skeptical of high compensation at the University of California; side with the critics, and risk alienating power brokers within the system, and even future recruits.

James C. Garland, former president of Miami University of Ohio, said he encountered numerous situations as president where he felt an unpopular choice was still best for the university.

“Things like firing a coach, or closing down an academic college, or paying a dean a high salary, those things often present a conflict between what is in the best interest of the institution and doing something that seems unseemly or antagonistic to the larger population,” said Garland, author of Saving Alma Mater: A Rescue Plan for America's Public Universities (University of Chicago Press).

If it’s demonstrated that the regents in fact agreed to honor these bigger pensions – and that’s a big "if" – then it may well make political sense to take the political heat and pay them, Garland said. Doing otherwise could greatly damage the credibility campuses need to recruit top people, he said.

“If [Yudof] wants to get off the hook politically, then obviously he could stand on some kind of principle that says, 'This is a tough time for California and for taxpayers, and these are among the highest paid people in the state and public life, and we’re going to do what’s in the interest of the little guy,' ” Garland said. “That would be a very popular thing to say and it would get him off the hook with a lot of the opponents of UC policies. But there would be a terrible, terrible price to pay in terms of its impact on the campuses themselves.”

There is likely a price to pay no matter how the pension debate shakes out. There is a strong sense the executives are prepared to take their cases to court, and that may be necessary – and uncomfortable, said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education.

“It’s never desirable. That’s for sure,” he said. “There’s no upside … but, as I say, if it’s a legal question there are legal processes for working through it.”

Helen Henry, who joined fellow Academic Senate members in a statement opposing the benefit increases, said she views the debate as part of a fundamental philosophical disagreement within the university. The signatories to the letter, many of whom are based in medicine or management, have a different view of the university than faculty from other disciplines, she said.

“I don’t think there’s any question but that there are these two different mindsets that are fighting for what the university should be. It’s transparent in this letter,” said Henry, a professor emeritus of biochemistry at the Riverside campus. “They are running businesses. But there are those of us that don’t feel this is what the university should be.

“This is absolutely a manifestation of that clash between the people who see UC as their business … and the people who see UC’s mission as teaching, and research and service to the state. That’s a dual personality that the university always has to live with.”

Henry was among seven Academic Senate members to serve on the President’s Task Force on Post-Employment Benefits, which looked at a range of painful choices for pensions. The Steering Committee of the task force recommended the pension benefits be increased for higher-paid employees, while the senators put forward a dissenting view.

While there may be room to debate whether the pension expansions were formally approved by the regents, there’s plenty of evidence to suggest the regents thought the increases were a sound idea before the economy tanked. Given widespread public concern about excessive compensation in higher education, the initial enthusiasm for these big packages is another issue altogether, said Patrick M. Callan, president of the National Center for Public Policy and Higher Education.

“I think [Yudof is] right to resist this. The question is, should it have been done in the first place,” Callan said. “I would argue it’s pretty hard to make a case for that.”


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